Why intelligence is key to combating COVID

David Fairs, Executive Director of Regulatory Policy, Analysis and Advice, takes a closer look at some of our key COVID-19 updates. The success of plans to mitigate the impact of COVID-19 will rest on the quality of the intelligence they’re based on.

The term ‘unprecedented’ has been used repeatedly during the pandemic. Comparisons have already been made with the financial crisis of 2008. Some economists have even predicted COVID-19 may see the worst economic crash since the Great Depression of 1929-1933.

While reflecting on the past can tell us what may happen, it’s vital we have good-quality information about what is happening.

Without this insight, policies to combat problems unique to this crisis are likely to be severely undermined.

Respite

When the pandemic first hit, The Pensions Regulator (TPR) quickly introduced guidance to reduce the reporting burden on schemes as they grappled with the immediate consequences of COVID-19.

Broadly, we told schemes that if breaches could be rectified within three months and there was no negative impact on savers they did not have to report them to us.

We also made clear that schemes should keep records of their decisions and actions during this period.

Intelligence gathering

Now, nearly three months since lockdown began on the 23 March, we are amending that guidance so TPR can build a picture of where we stand now.

Because it’s so important TPR understands how COVID-19 is affecting our regulated community, we expect trustees, where possible, to comply with their reporting requirements from 1 July. This is primarily to help us to scan the horizon for risks to savers, and won’t automatically lead to us pursuing enforcement action.

From this date, schemes need to restart reporting:

Suspended defined benefit (DB) contributions
Late valuations and recovery plans that are not agreed
Delays in CETV quotations and payments
Failure to provide audited accounts
Reporting in relation to master trusts though formal channels

These reports will give us crucial intelligence at a market and individual scheme level.

Sympathetic regulation

We know the climate is challenging for trustees, which is why we will continue to regulate sympathetically.

This means COVID-19 will be considered when deciding if it is appropriate to issue fines or take other enforcement action.

We will consider whether schemes documented their decision making so we can assess if they took reasonable steps to avoid or rectify a breach.

For defined contribution (DC) schemes, we will continue to allow up to 150 days to report late payments rather than the normal 90 days applying pre-COVID.

Chair’s statement

TPR does not have discretion on whether to issue fines for breaches of chair’s statement requirements. TPR does not expect to be reviewing any chair’s statements before the autumn.

Deficit repair contributions (DRCs)

Data shows about 10% of DB schemes have sought to defer DRCs and discussions are ongoing for others. TPR recognises the need for some deferrals to continue.

Trustees of DB schemes should be open to reasonable requests to delay DRCs. This should be subject to undertaking due diligence, particularly as we expect there is now greater insight into an employer’s short-term liquidity than when lockdown began.

DRC suspensions or reductions may remain appropriate, but we do not expect trustees to unquestioningly extend their original suspension arrangements on a three-month rolling basis.

Most trustees should now be able to assess the employer’s financial position before agreeing a new suspension or reduction. For some employers, short-term visibility may remain extremely limited – making it difficult for them to provide the information trustees need to make an informed decision. In these cases, if trustees are satisfied that there is uncertainty and a lack of information, a further short-term suspension of contributions may be appropriate. However, trustees should be able to explain how the suspension would not be a breach of their fiduciary duties.”

Risk-based approach

For automatic enrolment contributions, while employers continue to have pension duties, our approach to fines will initially focus on those employers which present the greatest risk to savers.

We will provide guidance and information to individual employers before issuing any fine, so they have time to comply.

Advice

We don’t recommend trustees take professional advice in respect of every decision they make. However, in some situations, particularly where trustees have difficult decisions to make and the decision is material for the scheme or employer, taking advice may be the right thing to do.

Taking legal advice on negotiation options where there are competing stakeholders, such as in refinancing or restructuring situations, may reveal they have more leverage than they realise.

Challenges continue

The success of any response TPR can make to the new COVID-19 environment will rest on the quality of the information it’s based on which is why reporting to us is so important.

We know we will continue to face challenging decisions and circumstances as we continue to move out of lockdown.

We want to reassure those we regulate that TPR is determined to help where it can by taking a pragmatic approach while remaining focused on the need to protect savers and our other statutory objectives.

David Fairs